Question

Assume now that the insurance company is a monopolist that wants to maximize expected profits. What price would the monopolist charge this consumer

Answer 1

The answer is "
`r\leq 2.5`"

Step-by-step explanation:

Please find the complete question in the attached file.

When x is higher, that insurer's profits are greatly increased. The user wishes to obtain the same quantity in both cases.

`\to 500000-rx = 500000-rx + x- 200,000\\\\\to x = 200000`

Its usefulness must be greater than 0 if there is no accident.

`\to U(500000-xr)\geq 0\\\\\to \log (500000- r* 200000) \geq 0 \\\\\to (500000- r* 200000) \geq 0\\\\\to r\leq 2.5`